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Understanding Decentralized Currencies

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Cryptocurrencies are decentralized — that is, no central bank, no central database, and no single, central authority manages the currency network. Conversely, the United States has the Federal Reserve in Washington, D.C., the organization that manages the U.S. dollar, the European Central Bank in Frankfurt manages the euro, and all other fiat currencies also have centralized oversight bodies. (A fiat currency is legal tender supported by governments via a central bank.)

However, cryptocurrencies don’t have a central authority; rather, the cryptocurrency community and, in particular, cryptocurrency miners and network nodes manage them. For this reason, cryptocurrencies are often referred to as trustless. Because no single party or entity controls how a cryptocurrency is issued, spent, or balanced, you don’t have to put your trust in a single authority.

Trustless is a bit of a misnomer. Trust is baked into the system. You don’t have to trust a single authority, but your trust in the system and fully auditable codebase is still essential. In fact, no form of currency can work without some form of trust or belief. (If nobody trusts the currency, then nobody will accept it or work to maintain it!)

Cryptocurrency Mining For Dummies

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